Delphi Automotive plc (DLPH) Unit Receives Notice of Proposed Adjustment ... - StreetInsider.com (subscription)
Delphi Automotive plc (DLPH) Unit Receives Notice of Proposed Adjustment ...
On June 24, 2014, the IRS Examination Team issued a Notice of Proposed Adjustment (the “NOPA”) asserting that it believes Section 7874(b) applies to Delphi and that we should be treated as a domestic corporation for U.S. federal income tax purposes, ...
Washington legislators are introducing bills to stop “tax inversions,” or the process by which corporations merge with foreign companies and move abroad to lower corporate tax burdens. This follows Medtronic’s recent inversion and comes as Walgreen Co. shareholders exert pressure on the Illinois-based corporation to do the same.
Recent legislative proposals aim to keep corporations in the U.S. and to stop the erosion of the nation’s corporate tax base. Senator Dick Durbin has introduced a bill that would provide a tax credit of $1,200 per employee to any corporation that stays in the U.S., while Senator Carl Levin has proposed legislation that would place a two year moratorium on corporate inversions. And indeed, the revenue implications are significant: Medtronic stands to save around $4 billion annually in taxes with its move, while Walgreen Co. would save nearly $800 million per year.
What’s interesting, though, is that American corporations already foot large corporate tax bills on income earned abroad. In fact, U.S. corporations paid an average effective tax rate of 27.2 percent on foreign profits in 2010, or approximately $128 billion in taxes out of $470 billion in taxable income. To put that number in perspective, that is 2.7 percent above the OECD average of 25 percent.
Still, U.S. corporations seem undaunted, and a steady stream of corporations are moving abroad —fourteen have done so since 2012. The fact that corporations are jumping to leave under these circumstances should be a sign to Washington: a more competitive corporate tax code might be the best solution to keep corporations at home.
The U.S. is one of only six developed nations with a “worldwide” tax system that subjects its domestic corporations to double taxation. Income earned by American corporations abroad is taxed once by the nation in which it was earned, and again when the income is brought back within our borders – up to the federal rate of 35 percent. When combine with state and local corporate taxes the U.S. has the highest corporate tax rate among the world’s 34 most industrialized nations at 39.1 percent. This double taxation, and at such a high rate, discourages saving that promotes business investment, hiring, and production.
Instead of lambasting corporations for fleeing the U.S. and its punitive corporate tax code, Congress might have better success keeping corporations in the United States if they address the root of these tax inversions. Lowering the corporate rate to the OECD average and abandoning worldwide taxation in favor of a territorial system would be a suitable start.
The Pennsylvania House of Representatives has passed a measure (HB 2188) to suspend 13 different tax credits for two years, thereby reducing the state’s deficit by $48 million. According to the associated fiscal note, the tax credits suspended would be:Property and Casualty Insurance Guarantee Association Credit Research and Development Tax Credit Resource Enhancement and Protection Tax Credit Historic Preservation Incentive Tax Credit Community-Based Services Tax Credit Job Creation Tax Credit Mobile Telecommunications Broadband Investment Tax Credit Innovate in PA Tax Credit Neighborhood Assistance Tax Credit Keystone Special Development Zone Tax Credit Keystone Innovation Zone Tax Credit KOZ, KOEZ and KOIZ tax credits Promoting Employment Across PA.
Most of these credits amount to narrow carve-outs for favored industries and firms, and thus their elimination would generally be good tax policy as a way to make the tax code more neutral. Furthermore, Pennsylvania has recently been considering a few good adjustments for the tax code that would partially relieve the increased tax burden once these credits are suspended. HB 2400, HB 2401, and HB 2402 would raise the depreciation deduction cap for S Corporations, permit small businesses to use the net operating losses deduction, and conform Pennsylvania to federal standards allowing a business to swap like assets without paying taxes. No fiscal note has been provided to determine how large a revenue impact these provisions may have.
If Pennsylvania both suspends (or, better yet, eliminates) many of these distortionary tax credits and adopts the positive changes in HB 2400, HB 2401, and HB 2402, it would be a meaningful improvement in Pennsylvania’s business tax climate (the Keystone State currently ranks 24th in our State Business Tax Climate Index).
However, aside from these incremental changes in tax credits and deductions, there is a bigger problem in Pennsylvania’s tax climate: its second-highest-in-the-nation state corporate income tax. At 9.99 percent, Pennsylvania’s burdensome corporate rate makes it uniquely profitable for firms to pursue special credits and carve-outs. With at least some of those credits suspended, more Pennsylvania firms will foot the full freight of the corporate tax rate. In fact, shortfalls like the one Pennsylvania is currently experiencing are particularly likely in states highly dependent on corporate taxes, the most volatile of all major taxes. By relying more on taxes with broader bases and lower rates, Pennsylvania could meet its financial needs with less volatile revenue streams, and enjoy the benefits of a more pro-growth tax climate.
Read more on Pennsylvania here.
Read more on tax credits and deductions here.
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A former U.S. Internal Revenue Service official at the center of a controversy over the tax agency's treatment of Tea Party groups sent emails in which she appears to seek an audit involving a Republican senator, according to documents released on Wednesday by a House of Representatives committee. The emails show former IRS official Lois Lerner received an invitation to an event in 2012 that was meant to go to Republican Senator Charles Grassley of Iowa. Lerner, in an email to another IRS official, suggests referring the matter for an audit.
Developing economies are increasingly hurt by the way global corporations exploit taxation differences and move profits to low-tax locations, according to an International Monetary Fund report Wednesday. Moreover, companies are increasingly able to shift and relocate more intangible assets -- like intellectual property -- to avoid taxes. In addition, tax-cutting and legal tax avoidance by corporations are having an impact on countries' fiscal strength, undermining their ability to fund government just at a time when many are fighting deficits. These sums may be small relative to total tax revenue in sizable advanced economies, but are large for the developing countries," the report said.
Despite receiving tax incentives, state subsidized worker training, and infrastructure support, the $2.4 billion Revel Casino Hotel in Atlantic City, New Jersey, looks likely to close if it doesn’t find a buyer soon. Last Thursday, the casino filed for bankruptcy for the second time since 2012.
The Revel project had been launched by Morgan Stanley, which halted construction in 2010 after sinking $1 billion into the project. The State of New Jersey revived the project in 2011, when Governor Chris Chrstie (R) arranged for up to $261.4 million in tax credits to complete the project, which in turn leveraged additional private dollars. These credits (which have not been paid, as the casino has yet to cover its operating costs let alone owe taxes) is in addition to $2.6 million provided by the New Jersey Department of Labor and Workforce Development in a Customized Training Grant for worker training, the Casino Reinvestment Development Authority (CRDA) approving $20 million in infrastructure funding in 2009, and Atlantic City approving a $56 million bond ordinance in 2008 (the latter two to improve roads serving the casino). Furthermore, in 2012, the CRDA used its eminent domain power to seize over 60 housing units adjacent to the Revel Casino for supplemental mixed-use development.
New Jersey had projected that the new Casino would bring in $1.6 billion in capital investment, $650 million in additional state and local government revenues, and 5,500 full-time jobs. As it turns out, the EDA estimates were wrong. Since the grand opening in 2012, Revel Casino has never turned a profit. After filing for Chapter 11 bankruptcy in March 2013, it emerged in May 2013 after restructuring to reduce its debt from $1.52 billion to $272 million. But the casino still can’t cover its costs and is again in financial distress. Revel filed for bankruptcy again last Thursday, perhaps for the last time. According to state documents, as of February 2014, the hotel employed only 2,748 employees, of whom only 1,762 were full-time.
Targeted benefits of the type New Jersey has showered on the Revel Casino distort the market signals that investors use to allocate their resources to the highest value use. Sadly, when investors are enticed with special tax breaks, grants, and bonds, valuable resources are often used inefficiently. For example, the private and public investments made in the Revel project could have been used in industries that would have created long-term jobs in New Jersey. The Revel Casino’s lackluster performance should be a cautionary tale for future policy makers attempting to save politically favored industries.
By propping up the Revel Casino with tax policy incentives New Jersey threw good money after bad. New construction and tax incentives are not synonymous with long-term growth. This EDA failure illustrates the downside of business tax credits. Instead of choosing winners and losers, governments should improve their business climate by lowering tax rates for everyone, not by carving up the base.
For this week's tax map, we take a look at combined tax rates on commercial jet fuel in each state. When fuel for airplanes is bought at airports, much as when fuel for cars is bought at gas stations, there are taxes owed on that fuel. The airline industry estimates that, for every penny increase per gallon in fuel costs, industry-wide fuel expenses rise $180 million, which means $180 million in extra costs for passengers because airlines do not presently have wide profit margins. Fuel expenses range from 20 to 40 percent of airlines’ operating costs, so these costs are a significant component driving ticket prices for consumers.
(Click on the map to enlarge it. Reposting policy)
Several types of taxes apply to jet fuel. First, there’s a federal jet fuel excise tax applied nationwide. This tax ranges from $0.219 for general aviation such as private jets to $0.044, for commercial aviation. Then there are state or local jet fuel taxes, which range widely as well, and which sometimes vary for private versus commercial aviation. Beyond that, some states include jet fuel in their sales tax base, and some states apply additional taxes (such as environmentally-related taxes) to fuel.
As with gas taxes, there is a legitimate argument to be made for some of these taxes. If they are to be levied, using fuel excise taxes to pay for airports makes sense, much as using gas taxes to pay for roads makes sense. Federal rules, in fact, require that jet fuel taxes finance airports, though some states and localities have attempted to divert fuel tax collections.
It’s also reasonable to include general jet fuel consumption in the sales tax base. However, it does not make sense for commercial jet fuel to be in the sales tax base, as commercial jet fuel is a business input. Applying the sales tax to commercial jet fuel creates tax pyramiding, especially in an industry like aviation which has large excise taxes at multiple points along the production chain.
There are 19 states that don’t include any jet fuel in their sales tax base, 16 that tax private jet fuel purchases but exempt commercial airlines, and 15 states that apply the sales tax to commercial jet fuel (though sometimes at a reduced rate). Furthermore, 28 states apply fuel excise taxes, and many states also apply various other taxes such as environmental taxes. In 13 states, tax rates can vary significantly by airport due to local add-on taxes. For those states, our data reflects the highest-traffic airport in each state. Finally, three states (New Jersey, New York, and Washington) only tax fuel estimated to be burned within their state borders, significantly reducing the burden of fuel taxes.
The highest total tax rates for commercial jet fuel are in Illinois ($0.3275 per gallon), California ($0.27), and Connecticut ($2643). The lowest rates are in Delaware, Ohio, and Texas, none of whom tax jet fuel, as well as Maryland, with only a $0.0007 per gallon effective rate due to small environmental taxes.
State Effective Rate Varies by Airport? Rate is for which airport? Jet fuel included in sales tax base? Business inputs exempted? Is there an excise tax? Is there a burn-rate adjustment? Alabama $0.0453 No N/A Yes Yes Yes No Alaska $0.032 No N/A No N/A Yes No Arizona $0.0165 Yes PHX Yes No Yes No Arkansas $0.213 No N/A Yes No No No California $0.27 Yes LAX Yes No No No Colorado $0.127 Yes DEN Yes No No No Connecticut $0.2643 No N/A Yes Yes No No Delaware $0 No N/A N/A N/A No No Florida $0.0897 No N/A Yes Yes Yes No Georgia $0.15 Yes ATL Yes No No No Hawaii $0.161 Yes HNL No N/A Yes No Idaho $0.07 No N/A Yes Yes Yes No Illinois $0.3275 Yes ORD Yes No Yes No Indiana $0.01 No N/A Yes Yes No No Iowa $0.04 No N/A Yes Yes Yes No Kansas $0.2145 Yes ICT Yes No No No Kentucky $0.034 No N/A Yes No No No Louisiana $0.1213 No N/A Yes No No No Maine $0.0416 No N/A No N/A Yes No Maryland $0.0007 No N/A No N/A No No Massachusetts $0.1659 No N/A No N/A Yes No Michigan $0.2188 No N/A Yes No Yes No Minnesota $0.027 No N/A Yes Yes Yes No Mississippi $0.0525 No N/A No N/A Yes No Missouri $0.033 No N/A Yes N/A No No Montana $0.0475 No N/A N/A N/A Yes No Nebraska $0.033 No N/A Yes Yes Yes No Nevada $0.04 Yes LAS No N/A Yes No New Hampshire $0.0063 No N/A N/A N/A Yes No New Jersey $0.0035 No N/A Yes Yes Yes Yes New Mexico $0.0945 Yes ABQ Yes No No No New York $0.005 No N/A Yes Yes Yes Yes North Carolina $0.0525 Yes CTL Yes No No No North Dakota $0.08 No N/A No N/A Yes No Ohio $0 No N/A No N/A No No Oklahoma $0.0108 No N/A No N/A Yes No Oregon $0.01 No N/A N/A N/A Yes No Pennsylvania $0.03 No N/A No N/A Yes No Rhode Island $0.0012 No N/A Yes Yes No No South Carolina $0.0075 No N/A Yes Yes No No South Dakota $0.06 No N/A Yes Yes Yes No Tennessee $0.15 No N/A Yes N/A No No Texas $0 No N/A No N/A No No Utah $0.03 Yes SLC Yes Yes Yes No Vermont $0.21 Yes BTV Yes No No No Virginia $0.011 No N/A No N/A Yes No Washington $0.04 Yes SEA No N/A No Yes West Virginia $0.152 No N/A No N/A Yes No Wisconsin $0.02 No N/A Yes Yes No No Wyoming $0.05 No N/A Yes Yes Yes No
Read more on fuel taxes here.
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WASHINGTON (AP) — The Internal Revenue Service did not follow the law when it failed to report the loss of records belonging to a senior IRS executive, the nation's top archivist told Congress on Tuesday, in the latest development in the congressional probe of the agency's targeting of conservative groups seeking tax-exempt status.
By Kevin Drawbaugh WASHINGTON (Reuters) - The U.S. Internal Revenue Service was criticized by the government's chief archivist on Tuesday over emails that the tax agency has lost, the latest focus of a Republican inquiry into past IRS treatment of conservative groups. U.S. Archivist David Ferriero told lawmakers at a hearing that the IRS did not inform his agency, the National Archives and Records Administration (NARA), as required by law, when it discovered that a former senior IRS official's computer crash had wiped out some of her emails. Ferriero stopped short of broader accusations, while Democrats blasted Representative Darrell Issa, who chaired the hearing, for his handling of it and for issuing a subpoena on Monday compelling a second witness to appear. O'Connor, who was seated alongside Ferriero, shed no meaningful new light on the loss of the emails, or on the original focus of Issa's probe -- extra scrutiny applied by the IRS from March 2010 to May 2012 to applications for tax-exempt status from conservative groups.
The Affordable Care Act increases marginal tax rates on labor by about six percentage points and is one of the largest tax increases in the last 70 years according to economist Casey Mulligan:
“During a period that included more than a dozen tax increases, the ACA is arguably the largest as a single piece of legislation, adding about six percentage points to the marginal tax rate faced, on average, by workers in the economy. The only way to cite larger marginal tax increases would be to combine multiple coincident laws, such as the Revenue Acts of 1950 and 1951 and the new payroll tax rate that went into effect in 1950. Even with these adjustments, the ACA is still the third largest marginal tax rate hike during the seventy years.”
He makes the historical comparison in the chart below.
In the case of the Affordable Care act, Mulligan is talking about implicit marginal tax rates, or “the extra taxes paid, and subsidies forgone, as the result of working.” This means that the taxes and subsidies included in the Affordable Care Act increase the tax rate on an additional dollar of income by six percentage points.
Mulligan warns that we shouldn’t be surprised that “as we implement a new law that taxes jobs and incomes, we are ending up with fewer jobs and less income.”
In response, Greg Mankiw did some rough math to illustrate what the six percentage point tax increase might do to the economy:
“Given that labor income was already taxed by income and payroll taxes, that figure indicates the return to working fell by about 10 percent. If we apply a plausible aggregate labor supply elasticity of 0.5, this in turn suggests a decline in labor supply of about 5 percent. In the long run, as the capital stock adjusts, a fall in labor supply leads to a proportionate fall in output.”
Mankiw says that Mulligan emailed him and shared that he believes the effect will be about a two percent drop in the size of the economy.
In an economy where the labor force participation rate sits near the levels of the late 1970s at near 63 percent, policies that cut the return to work by 10 percent and decrease the size of the economy by any amount are the last types of policies that workers need.
Walgreen's fiscal third quarter earnings jumped 16 percent compared with last year, aided in part by a lower income tax rate, but the drugstore chain's performance again fell short of Wall Street's expectations.
UPDATE (12:12pm): The Catania amendment was defeated 4 to 9.
UPDATE (2:04pm): The DC Council passed the full budget 12 to 1, including the tax reform package. It now goes to the Mayor for his approval or veto.
The District of Columbia Council enters into session today at 10:00 AM to vote on a budget package that includes a major tax reform. An initial vote on May 29 approved the package on an 11 to 2 vote; to become law, bills must be approved by the Council on two different occasions separated by at least 13 days. The Mayor then has ten business days to sign or veto the bill; if vetoed, the Council then has 30 days to override the veto.
The tax reform package is impressive, resulting from a blue ribbon commission’s conclusion that the District’s current tax system has three major shortcomings: (1) middle-class residents pay a relatively large share of their income in District taxes; (2) business taxes are too high; and (3) the District’s tax base is too narrow. The tax reform package seeks to address these issues with reforms to the individual income tax, business taxes, sales tax, and estate tax:Middle-income taxpayers (those between $40,000 and $350,000) will see their tax rate drop from 8.5 percent to 7 percent next year, then 6.5 percent the year after that. Those earning up to $1 million will see their tax rate drop from 8.95 percent to 8.75 percent. All taxpayers will see more generous standard deductions and personal exemptions, as they will be increased to match federal levels. Childless low-income workers will see a larger Earned Income Tax Credit (EITC), from 40 percent of the federal credit to 100 percent of the federal credit. The District’s hefty business tax will drop from the current 9.975 percent to 9.4 percent (2015), 9 percent (2016-17), 8.5 percent (2018), and then to 8.25 percent (2019), and the District will adopt single sales factor apportionment. The estate tax threshold will be recoupled to federal law. The District’s sales tax will be expanded to a number of services currently exempt due to historical accident.
This last feature has proven the most controversial, with some of the District’s gyms and yoga studios organizing a “stop the wellness tax” and “stop the yoga tax” campaign. This misleadingly suggests that a punitive tax will be imposed on just gyms and yoga studios, rather than just those businesses having to collect the same sales tax all other businesses collect. Councilman David Catania (I), a mayoral candidate, has taken up their cause and will propose an amendment to cancel some of the business tax cuts, using the revenue instead to restore the gym/yoga tax break (see Table 2).
Those special interests aside, the consensus is in favor of the tax reform package as good policy, including the sales tax broadening. Positive statements have been made by the Center on Budget and Policy Priorities (CBPP), Citizens for Tax Justice (CTJ), the D.C. Fiscal Policy Institute, the Cato Institute, the National Taxpayers Union (NTU), Americans for Prosperity (AFP), the Tax Foundation, and columnists Matt Yglesias (Vox.com), Josh Barro (NY Times), and Mark Lee (Washington Blade).
Added to that is an unprecedented letter sent yesterday, co-signed by the D.C. Chamber of Commerce, the D.C. Fiscal Policy Institute, and the Federal City Council:
We support the D.C. Council’s actions to endorse the recommendations of the D.C. Tax Revision Commission through wide ranging tax reform that makes District of Columbia tax policy fairer and more competitive. The expansion of the District’s sales tax to various services is just one part of an overall package that reduces tax rates across the board on District residents and businesses. Overall, a typical resident who pays the new health club service tax will benefit with eight to 12 times as much tax relief from tax reductions elsewhere in the tax cut package.
One of the primary tenets of good tax policy is that it should limit distortions to the economy and the best way to do this is through a broad base and low rates. Although it is tempting to use tax policy to achieve policy goals, there are almost always more effective ways to promote policy objectives. Case in point: by one measure, 67 percent of people who pay for gym memberships don’t use them; how will giving these residents a tax break promote health outcomes? Residents do pay for all sorts of things that promote their health that are subject to the sales tax already including sporting gear and sporting apparel. If we exempt everything with a health benefit from the sales tax, rates would be driven even higher.
If D.C. approves this sensible tax policy, we will be in good company. Among the 45 states that levy a sales tax, nearly half (22 states) already tax fitness club memberships. This list includes Minnesota, Connecticut, New Mexico, and Hawaii ‐‐ four of the 10 states with the lowest obesity rates in America.
A separate amendment by Council Chair Phil Mendelson (D), the reform's lead sponsor, will clarify that the changes will be triggered by revenue thresholds (which will be easily met). I’ll be live-tweeting what the Council does at @jdhenchman.
Table 1: Implementation of Tax Changes Under D.C. Budget Proposal
Individual Income Tax Rates and Brackets
All filing statuses
Match federal (currently $6,100 single and $12,200 married, annually adjusted for inflation)
$1,675; reduce for taxpayers with incomes over $150,000; phased out for taxpayers with incomes over $350,000
Match federal (currently $3,900, annually adjusted for inflation)
EITC for single childless workers
40% of federal
100% of federal
Business Franchise Tax
Estate Tax Threshold
Match federal (currently $5.25m, annually adjusted for inflation)
Sales Tax Rate (unchanged)
Table 2: Catania Amendment Raises Business Taxes to Pay for Gym/Yoga Tax Breaks
Catania Amendment Proposal
By Kevin Drawbaugh and Moriah Costa WASHINGTON (Reuters) - Republicans accused the U.S. Internal Revenue Service on Monday of hiding emails written by a former senior official and obstructing a congressional inquiry into a controversy involving past IRS treatment of conservative groups. In an unusually contentious evening hearing on Capitol Hill, Democrats accused Republicans of rehashing baseless accusations for political theater in the so-called IRS Tea Party targeting affair that traces back to mid-2013. In May 2013, Lois Lerner, who headed an IRS unit involved in applying extra scrutiny to conservative political groups' applications for tax-exempt status, apologized in public for what she called "inappropriate" review of conservative groups' applications. Republicans have been investigating since then.
The average U.S. worker faces a tax burden of 31.3 percent. This includes both income taxes and payrolls taxes. Between these two types of taxes, the average U.S. workers pays over $16,000 in taxes on their labor.
The tax burden is a combination of income taxes at the federal, state, and local levels as well as the employee and the employer payroll taxes. Of the 31.3 percent tax burden, 15.4 percent is due to income taxes and 15.9 percent is due to payroll taxes, over half of which is paid by the employer on the employee’s behalf. (Workers pay the cost of the employer-side payroll taxes through lower wages.)
In total, the average worker pays $8,196 in income taxes and $8,462 in payroll taxes, which are meant to fund programs such as Social Security and Medicare.
In the absence of the $16,658 in taxes and any benefits they provide, the average worker would take home $53,223 in income, as opposed to the current after-tax income of $36,564 for the average worker.
To read more about the tax burden on U.S. labor as well as an international comparison, see here.
Income Tax Reporting For Decanting
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The IRS ruled, among other things, that for federal income tax purposes: (i) the successor trusts would be treated as a continuation of the original trusts; (ii) the transfer of assets would not be a distribution or termination under Section 661; and ...